1. What portion of a 4.88 acre property qualifies as a principal residence for purposes of the principal residence capital gains exemption under paragraph 40(2)(b)of the Income Tax Act?
2. Do the log cabins (located on the 4.88 acre) in which the taxpayer lived for two years during the construction of a house close to the cabins qualify as a principal residence under the definition of this term in section 54 of the Act?
3. When the taxpayer, after moving from the cabins into the house, started renting the cabins, was there a deemed disposition of the cabins under subsection 45(1) of the Act?
4. Is the election under subsection 45(2) of the Act available in respect of the cabins?
1. Question of fact. Taxpayer referred to the TSO. General comments provided in respect of land in excess of 1/2 acre. Notwithstanding the existence of a minimum lot size restriction at acquisition, if severance could be obtained by application to authorities, the severable portion is not part of the residence: see section 16 of proposed IT-120R5. General comments also included for land of 1/2 acre or less because of the taxpayer's rough diagram locating the house at one end of the property (with road access), the taxpayer's statement that the "the house takes up some of the land where the cabins are", and the fact that the cabins are rented. Land used to earn income (from business or property) is generally considered not to be necessary for the use and enjoyment of the housing unit as a residence: see section 14 of proposed IT-120R5.
2. Yes, the cabins may qualify as a principal residence, if so designated.
3. Yes, a deemed disposition did occur.
4. Yes, the election under subsection 45(2) is available.
Reasons: IT-120R4 and proposed IT-120R5.